ECB to scale back bond buying, signaling policy shift

FRANKFURT — The European Central Bank Thursday said it will cut its monthly bond buying to €30 billion from €60 billion, starting in January.

The new purchase target is set to last until September 2018, but the ECB added that it stands ready to extend the bond-buying program, “if necessary.”

Meanwhile, ECB President Mario Draghi and his colleagues kept the benchmark interest rate on the deposit facility at -0.40 percent and reiterated their forward guidance that they “expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.”

The ECB’s announcement on Thursday to scale back its so-called “quantitative easing” (QE) marks the beginning of the end of its loose monetary policy as the eurozone economy recovers.

ECB policymakers, however, have opted to stretch out the policy amid concerns that the bloc’s inflation rate is still too low. The headline eurozone inflation for September was 1.5 percent — undershooting the ECB’s “just-below-2-percent” target.

“Today’s monetary policy decisions were taken to preserve the very favorable financing conditions that are still needed for a sustained return of inflation rates,” Draghi said.

During the press conference following the ECB governing council meeting, Draghi explained that the decisions weren’t unanimous, but “a large majority” of its 25 members agreed on the “flows” of the bond-buying program and keeping it open-ended.

Hawkish ECB policymakers, notably from Germany, have been pushing for an early end to QE. But it appears Draghi’s more cautious stance has won the argument, for now.